@F01
Thanks for sharing that interview.
Hate to say it, but I personally find the CFO’s justification of the price paid for the A25 rather unsatisfactory, and actually verging on flippancy.
For, while he is claiming that the multiple paid for the Canadian asset was lower than the corresponding multiple paid in the past for other Australian toll roads, he is not making any mention of the length of those concessions.
For context, Transurban has paid
26.5x EV/EBITDA for the A25, for a residual concession life of
24 years.
Comparable Australian assets for which the Company had paid a higher multiple in the past are:
Lane Cove Tunnel (May 2010)
EV/EBITDA:
28.5x
Residual concession life at acquisition:
38 years
Queensland Motorways (Apr 2014)
EV/EBITDA:
27.5x
Residual concession life at acquisition:
42 years (average)
AirportlinkM7 (Nov 2015)
EV/EBITDA:
28.0x
Residual concession life at acquisition:
38 years
Therefore, while the multiple paid for these assets was indeed slightly higher than the one paid for the A25, the corresponding residual concession life was
substantially longer.
Since the historical traffic growth rates are comparable (3%-4% pa) across all these assets, what this means is that, unless future traffic growth for the A25 materially exceeds its historical levels (or EBITDA margins materially improve), the Internal Rate of Return (IRR) of the A25 is going to be
substantially lower than the one of the Australian toll roads.
As a first approximation, and by my own estimates, the IRR for the A25 (on an EV basis) is likely to be in the region of
5%-6% pa, vis-a-vis
8%-9% pa for the Transurban Group as a whole (calculated at current SP).
So, while the Canadian acquisition may give a positive contribution (being 100% debt financed) to the distribution-per-share from year one, I see it as highly likely to be
dilutive from an IRR perspective, over the course of its life.
Finally, with regard to the Westconnex bid, I maintain (for the same reasons discussed before on this forum) my view that Transurban would be better off losing that deal, irrespective of how it is perceived by the market.
IMHO & DYOR
(20min delay)